Americans earned more and spent more in August, the latest sign that the economic recovery remains on track despite rising interest rates, a battered stock market and fears of a possible recession.
Personal income, after taxes, rose 0.4 percent in August, the Commerce Department said Friday. That was a bit faster than the 0.3 percent increase in consumer prices, making it the second month in a row that inflation-adjusted incomes increased.
Consumer spending, the bedrock of the American economy, also rose 0.4 percent, a rebound from a decline in July, though still below the growth rate from earlier this year. Spending has cooled this year as higher prices have eaten into shoppers’ buying power.
But consumers haven’t shut their wallets completely, proving particularly willing to shell out for travel, dining and other services that they missed out on earlier in the pandemic. Spending on services rose 0.8 percent in August, while spending on goods fell, reflecting the gradual shift back to normal of consumption patterns that were disrupted during the pandemic.
Revised data released on Thursday showed that consumer spending rose faster in the spring than previously believed, even as overall economic output fell for the second consecutive quarter.
The strong job market is providing a boost. Wage and salary income rose 0.3 percent in August and is up 8.6 percent over the past year as more people have gotten jobs and competition for workers has driven up pay.
Americans, in the aggregate, are also still sitting on a large stockpile of savings built up earlier in the pandemic. That could allow consumers to keep spending even if the job market cools or inflation re-accelerates. There are signs consumers may be beginning to chip away at their accumulated savings, however. Households saved 3.5 percent of their after-tax income in August, well below the prepandemic average of about 7 percent.